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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 125.00 | ACUITE BBB+ | Stable | Assigned | - |
| Total Outstanding | 125.00 | - | - |
| Total Withdrawn | 0.00 | - | - |
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Rating Rationale |
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Acuité has assigned its long-term rating to ‘ACUITE BBB+’ (read as ACUITE Triple B Plus) on the Rs. 125.00 crore bank facilities of UV Asset Reconstruction Company Limited (UVARCL). The outlook is 'Stable'. Rationale for the rating The rationale for the rating of UV Asset Reconstruction Company Limited (UVARCL) has considered the company's skilled management and promoters, robust recoveries and earning profile, comfortable capitalization, and overall gearing. Moreover, the financial performance of UVARCL has seen a significant improvement in the profitability levels due to major recovery from two accounts which resulted in the total income to reach Rs 171.88 Cr. in FY24 from Rs 39.05 Cr. in FY23. Profitability also increased to Rs 61.78 Cr. in FY24 from Rs 2.29 Cr. in FY23. The rating also factors in the healthy capitalization metrics as reflected by CRAR and gearing levels of 152.83 percent and 0 times, respectively, as of March 31, 2024. The rating however is constrained by the muted acquisitions untill 9MFY25 which has led to a decline in the AUM in the same time period. Moreover, the ratings are limited by the segments record of resolving stressed assets, fierce competition, and the potential of unfavourable revisions to the system governing distressed assets. Going forward, any changes in promoter shareholding and movement in capitalization buffers would remain key monitorables. Further, Acuité has taken cognizance of the ongoing proceedings with the Income Tax Department's. Acuité, takes note of the situation and will keep a tab on these developments. Going forward, UVARCL’s ability to profitably grow and achieve timely resolution of assets along with changes in promoter shareholding are key credit monitorable. |
| About the company |
| New Delhi based, UV Asset Reconstruction Company Limited was incorporated in 2007. Mr. Prakash Prabhakar Naolekar, Mr. Kishore Kumar Sansi, Mrs. Uma Shankar Paliwal, Mr. Dhan Raj, Mr. Gurpreet Kaur, Mr. Ritesh Aggarwal, Mr. Mayank Dinesh Shah are directors of the company. The Company commenced its Business as an Asset Reconstruction Company. The company acquires Non-performing assets from various banks and financial Institutions. |
| Unsupported Rating |
| Not Applicable |
| Analytical Approach |
| Acuité has adopted a standalone approach on UVARCL’s business and financial risk profile for arriving at the rating. |
| Key Rating Drivers |
| Strength |
| Experienced promoters, management and strong shareholders UVARCL has a team of qualified and experienced professionals to run various business operations. The Board of the company comprises of experienced professionals with banking and legal background. As on 31st December 2024, public sector banks and insurance companies hold 7.50% stake in the company. These include Central Bank of India, Bank of Maharashtra, Union Bank of India, Bank of India, Indian Bank, Punjab National Bank, National Insurance Company Limited and United India Insurance Company Limited. Improved Earnings profile UVARCL’s revenue profile comprises income from management fees, income from investments in financial assets and investments in security receipts. The company reported total income of Rs. 171.88 Cr. in FY2024 as against Rs. 39.05 Cr. in FY2023. The company reported Profit after Tax (PAT) of Rs.61.78 Cr. in FY2024 as against Rs.2.29 Cr. in FY2023. Acuité believes that the company’s ability to maintain a steady growth in revenues will be linked to its ability to maintain a consistent acquisition strategy; and controlling credit costs will be attained by timely and successful resolution of the acquired assets. UVARCL’s total recoveries have substantially improved in FY24 with realisation of financial assets amounting to Rs 981.90 crore when compared to Rs 111.90 crore in FY23. This was on account of recoveries from major accounts which were delayed in earlier years. Comfortable capitalization The company's capital position is comfortable as reflected by CRAR of 152.83 percent as on March 31, 2024 (P.Y: 50.28 percent). The increase in CRAR is attributable to decrease in risk weighted assets for the year. Further, the gearing remained at Nil times as on March 31, 2024 as against 0.73 times as on March 31, 2023. |
| Weakness |
| Industry concentration risks; business profile susceptible to timely resolution of assets The company’s AUM of Rs. 613.05 Cr. as on March 31, 2024 is across 14 industries of which top three industries constitute ~71.89 percent. The top three industries are Iron and Steel (48.78 per cent), Infrastructure (18.99 per cent) and Hospitality (4.13 per cent). UVARCL’s acquisition strategy is sector agnostic with a focus on aggregation and consolidating the share in the overall debt of the acquisition. Its acquisitions decreased in FY2024 to Rs.265.20 Cr. as against Rs.433.75 Cr. in FY2023 which has led to a decrease in AUM from Rs.1,329.75 Cr. in FY2023 to Rs.613.05 Cr. in FY2024. However, this also indicates that the recoveries/resolution of these cases has been much larger than the acquisitions which is reflected in the higher income and profitability levels. Any signs of economic contraction in near to medium term would not be conducive for effective and speedy resolution of stressed assets for ARC’s like UVARCL. Inherent challenges in the asset reconstruction business UVARCL is likely to continue to face challenges given the inherent nature of the asset reconstruction business. The changes in the regulatory regime pertaining to acquisition of distressed assets from banks by ARC has tilted the balance in favor of those ARCs who are able to acquire assets for direct cash conditions as against issuance of Security receipts. The current disposition does not provide any significant benefits to the banks (sellers of these distressed assets) in case the investment of the bank in these SR’s exceed a threshold limit. Hence, the banks are incentivized to go for cash deals. While the regulation has allowed QBs investment, the ability of any ARC to tap this route will depend to a large extent on their demonstrated track record of recovery especially in a similar sector. Any challenges in achieving meaningful resolution of these assets will also have a bearing on the ability of the ARC to attract future support from the QBs for their acquisitions. The intense competition from other ARC’s will also add to the headwinds in achieving the growth in scale of operations. |
| Rating Sensitivity |
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| Liquidity Position |
| Adequate |
| The company’s liquidity profile is adequate as on March 31, 2024. The acquisitions are funded through a mix of equity, QB funds and promoter funds with largely no scheduled payments. The cash flows of ARCs are generally uneven and a portion of revenues will depend on inflows from the resolution of SRs and upside revenues. Any challenges in ensuring steady revenue flow through timely resolution of the distressed assets will impact the liquidity buffers. |
| Outlook: |
| Stable |
| Other Factors affecting Rating |
| None |
| Key Financials - Standalone / Originator | ||||||||||||||||||||||||||||||||||||||||
**Total income is net of interest expense NA - Not applicable |
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| Status of non-cooperation with previous CRA (if applicable): |
| Brickworks, vide its press release dated June 20th, 2024 had denoted the rating of UV Asset Reconstruction Company Limited as BWR BB+/ Stable 'Downgraded and Issuer not co-operating’. |
| Interaction with Audit Committee anytime in the last 12 months (applicable for rated-listed / proposed to be listed debt securities being reviewed by Acuite) |
| Not applicable |
| Any other information |
| None |
| Applicable Criteria |
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• Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm • Asset Reconstruction Companies: https://www.acuite.in/view-rating-criteria-85.htm • Banks And Financial Institutions: https://www.acuite.in/view-rating-criteria-45.htm • Default Recognition: https://www.acuite.in/view-rating-criteria-52.htm |
| Note on complexity levels of the rated instrument |
| Rating History |
| Not Applicable |
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